Heart of Darkness (Can we learn anything from Pitcairn Island?)

Here’s The Telegraph:

Land is free and plentiful, the weather is good and there would be little chance of confrontation with the neighbours.

Yet almost nobody wants to wants to move to Pitcairn, the tiny Pacific island that was settled by mutineers from HMS Bounty.

The population on Britain’s smallest colony has been dwindling for years, and there are now fewer than 50 islanders left. But locals are struggling to find new settlers to follow in the footsteps of Fletcher Christian, who led the mutiny.

Only one application has been received to move to the island, even though the government provides all immigrants with a plot to build their own house and temperatures stay above 62F (17C) all year round.

.  .  .

Most of the island’s population is descended from the eight mutineers who settled on the island in 1789 after Christian mutinied against William Bligh, the Bounty’s captain. They brought six Polynesian men and twelve women from Tahiti with them.

Ms Christian admitted that the island’s location seemed like “the middle of nowhere”.

“But once you are there, you are as connected as anywhere else,” she said. “The island has electricity and the internet now.

“It is a special place and it is beautiful seeing the stars without light pollution. There are the bluest waters you have ever seen.”

Let’s start from the fact that Pitcairn is perhaps the least populous society on Earth—the polar opposite of China.  It has beautiful weather and fertile soil.

But—you knew there had to be a catch—there is a dark side.  From Wikipedia:

In 2004, charges were laid against seven men living on Pitcairn and six living abroad. After extensive trials, most of the men were convicted, some with multiple counts of sexual encounters with children. On 25 October 2004, six men were convicted, including Steve Christian, the island’s mayor at the time. After the six men lost their final appeal, the British government set up a prison on the island at Bob’s Valley.  The men began serving their sentences in late 2006. By 2010, all had served their sentences or been granted home detention status.

In 2010 a senior Pitcairn Islands official faced 25 charges of possessing images and videos of child pornography on his computer.

Children under the age of 16, even from the cruise ships, who wish to visit the island, must obtain the prior entry clearance.

.  .  .

The Pitcairn Islands are an overseas territory of the United Kingdom, meaning defence is the responsibility of the Ministry of Defence and Her Majesty’s Armed Forces.  In 2004, the islanders had about 20 guns among them, which they surrendered ahead of the sexual assault trials.

.  .  .

In September 2003, a baby was born on the island for the first time in 17 years. Another child, Adrianna Tracey Christian, was born on Pitcairn on 3 March 2007. In February 2005, Shirley and Simon Young became the first married outsider couple in recorded history to obtain citizenship on Pitcairn.

.  .  .

The Pitcairn Islands has the smallest population of any democracy in the world.

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Potential extinction

As of July 2014 the resident population of the Pitcairn Islands was 56, including the temporary residents like doctor, teacher etc. In fact the actual permanent resident population was only 49 Pitkerners spread across 23 households.  At the same time is rare for the 49 residents to be all on-island at the same time as it is common for several residents to be off island for varying lengths of time and reasons, for example, visiting family, medical reasons and attending international conferences. At the beginning of November 2013 approximately seven of the residents were known to be off-island.  A diaspora survey revealed that by 2045, if nothing is done, only three people of working age will be left on the island with the rest being very old. In addition, the survey revealed that residents who had left the island over the past decades showed little interest in coming back. Of the hundreds of emigrants contacted, 33 were willing to participate in the survey and only 3 expressed a desire to return. This may be partially attributable to the 2004 sexual assault trials which has caused many emigrants to be ashamed of their Pitcairn heritage. The current labour force consists of 31 able-bodied persons, 17 males and 14 females aged between 18 and 64 years of age. Of these 31 able-bodied persons 18 are over the age of 50, with only three in their 20s, and four in their 30s.

This sad story makes me wonder about small populations that are both isolated, and are composed of a tiny number of people (in this case from 2 vastly different cultures.)  And it somehow reminds me of Marlon Brando in Apocalypse Now. Ironically, Brando played Fletcher Christian in Mutiny on the Bounty.  Even more oddly, Brando’s first son was named Christian. Later he married an Mexican actress, who had starred in the 1935 version of  . . .  Mutiny on the Bounty.  His third wife was a Tahitian actress who co-starred with him on the 1962 version of Mutiny on the Bounty.

Want more ironies?  Brando mutinied while filming Mutiny on the Bounty, refusing to cooperate with the director. Nothing happened on the set until Brando gave the nod.

Attn. Noah Smith:  NGDP targeting might not be optimal for Pitcairn Island, especially as its population approaches zero.  I’d suggest a breadfruit standard:

Agriculture

The fertile soil of the Pitcairn valleys, such as Isaac’s Valley on the gentle slopes south-east of Adamstown, produces a wide variety of fruits: including bananas (Pitkern: plun), papaya (paw paws), pineapples, mangoes, watermelons, rockmelons, passionfruit, breadfruit, coconuts, avocadoes, and citrus (including oranges, mandarins, grapefruit, lemons and limes). Vegetables include: sweet potatoes (kumura), carrots, sweet corn, tomatoes, taro, yams, peas, and beans. Arrowroot (Maranta arundinacea) and sugarcane are grown and harvested to produce arrowroot flour and molasses. Pitcairn Island is remarkably productive and its benign climate allows a wide range of tropical and temperate crops to be grown.

Fish are plentiful in the seas around Pitcairn. Spiny lobster and a large variety of fish are caught for meals and for trading aboard passing ships. Almost every day someone will go fishing, whether it is from the rocks, from a longboat or diving with a spear gun. There are numerous types of fish around the island. Fish such as nanwee, white fish, moi and opapa are caught in shallow water, while snapper, big eye and cod are caught in deep water, and yellow tail and wahoo are caught by trawling. A range of minerals—including manganese, iron, copper, gold, silver and zinc—have been discovered within the Exclusive Economic Zone (EEZ), which extends 370 km offshore and comprises 880,000 km2.

Honey production

In 1998 the UK’s overseas aid agency, the Department for International Development, funded an apiculture programme for Pitcairn which included training for Pitcairn’s beekeepers and a detailed analysis of Pitcairn’s bees and honey with particular regard to the presence or absence of disease. Pitcairn, it was discovered, has one of the best examples of disease-free bee populations anywhere in the world and the honey produced was and remains exceptionally high in quality. Pitcairn bees were also found to be a particularly placid variety and, within a short time, the beekeepers were able to work with them wearing minimal protection. As a result, Pitcairn today exports its renowned honey to New Zealand and to the United Kingdom, where it is stocked in London by Fortnum & Mason on Piccadilly and Partridges near Sloane Square. The honey has become a favourite of Queen Elizabeth II and Prince Charles.  The Pitcairn Islanders, under the “Bounty Products” and “Delectable Bounty” brands, also export dried fruit including bananas, papayas, pineapples and mangoes to New Zealand.

It would be sad to see Pitcairn NGDP fall to zero.

Noah Smith has “incredible confidence” that he understands my views

Here’s Noah Smith:

Scott Sumner expresses incredible confidence that NGDP targeting is best .  . . .  I think normal people realize that that certitude is basically never warranted.

Well I’m certainly not a normal person, but he’s got it exactly backwards. I think it very unlikely that NGDP targeting is best, and have said so on many occasions.  As far as certitude, I’m not certain of anything.  I’m not certain that I’m not dreaming right now, or that the world won’t end next week.  More seriously, my hunch is that there are other targets that are better than NGDPLT, and that for some developing countries even an inflation target might be better.  There’s also a non-trivial chance that I’m wrong about almost everything, and that Paul Krugman or Bob Murphy is much closer to the truth.

Although I believe absolute certainty is never warranted, my impression is that “most people” believe exactly the opposite. Most people are certain that free will exists, that personal identity exists, etc. Indeed I find most people to be wildly overconfident in their beliefs in all sorts of areas.  I’m an extreme skeptic, out there on the 99.9% end of the skepticism distribution.  In fairness, I probably have occasionally used the term “certain” when I meant fairly sure, but I am quite confident I’ve never even hinted that I’m certain NGDP targeting is best.  It certainly, err, almost certainly is not.

Richest and poorest states

I thought it might be interesting to look at America’s three richest states, and three poorest states.  Here are the top three in real income per household in 2013 (adjusted for cost of living differences between states).  Income from this source, cost of living from here:

1.  New Hampshire   $67,158

2.  Virginia   $65,523

3.  Utah     $65,049

And now I’ll list the three poorest states, in terms of real income per capita in 2012, again adjusted for cost of living differences:

1.  Utah   $34,580

2.  Idaho   $34,818

3.  Arizona   $34,905

Notice anything odd?  BTW, which three American states have lots of Mormons?

And people ask why I don’t care about income inequality.

PS.  Mississippi?  Eighth poorest, beating even Hawaii.

 

 

The burden of history

[I actually wrote this before the agreement, so perhaps it’s a moot point.]

It seems to me that some of the recent commentary on Greece doesn’t provide the appropriate background information. Here’s a Bloomberg article:

When the euro region’s finance ministers gather later today, countries other than Germany need to make themselves heard with ideas for reconciling Greece’s democratic mandate for change with the integrity of the existing bailout rules.

And here’s Matt Yglesias:

This gets at the fact that the Germans simply don’t trust the Syriza government that is running Greece. It also gets at the fact that one of the reasons they don’t trust them is simply that they are Greek. The Greeks are viewed as an unreliable country that is in need of discipline and reform, and Syriza is seen as a political project that is fundamentally about resisting reform.

I can’t really argue with either statement, but the framing doesn’t really give much of a sense of why the Germans are so reluctant to negotiate with the new Greek government. Previous Greek governments lied, cheated, and swindled tens of billions of euros from northern Europeans. Unfortunately for the Syriza government, those earlier decisions, made by other governments, sharply constrain their current options. And I might add that this is also a problem for the voters in Greece, the so-called “democratic mandate.”  By electing a government containing everyone from Maoists to right-wing nationalists, united only by their fierce belief that the crimes of previous Greek governments should not reduce the willingness of Northern Europeans to lend Greece even more money to prop up social spending, the voters implicitly walked away from the burden of history.  As of today, it looks like the rest of the eurozone won’t let them off that easily.

PS.  Just to be clear, I do think a part of the problem in Greece is the tight money policy of the ECB, strongly supported by Germany.  However, this view is not at all widely held in Europe.  So Germany is not perceived as having any “guilt” for the problems in Greece–except perhaps due to its tight fiscal policy (a bum rap.)  That’s why you can’t really equate the two.  If it was ever widely believed that tight money was to blame, the solution would not be more aid for Greece from the North, but rather less tight money.  An ECB policy error that was signed off on by the policy elite of the entire eurozone is viewed as being very different from borrowing money under false pretenses, even if in some sense it is the greater “crime.”

The 20th century was a battle between the left and the right.  That’s over.  The 21st century is a battle between insiders and outsiders. The most extreme outsiders are ISIS and Boko Haram, hated by all governments.  North Korea is perhaps the most outside government that controls an entire country.  Then you have Venezuela, Iran, Russia, etc.  Somewhat more moderate are Hungary, Greece, and the surging populist parties of the left and right in Western Europe.  In contrast, the ECB (and the EU elite more generally) are the world’s ultimate insiders.

Off topic:  Commenters often remind me that sensible Keynesians favor monetary stimulus.  But of course many Keynesians, even Nobel Prize winners like Joe Stiglitz, are skeptical.  Here’s another name to keep in mind next time you read Paul Krugman trashing those Neanderthals on the right who oppose monetary stimulus:

By inflating asset prices, Mr Abe’s schemes could increase the gap between haves and have nots, Mr Piketty warned during his visit.

That’s not helpful.

What does MV = PY actually mean?

It means V is PY/M.

And that’s all it means.  But the textbook description of MV=PY is sometimes a bit confusing, as it seems to say two conflicting things:

1.  V is the velocity of circulation, the average number of times a dollar is spent per year

2.  MV = PY is an identity.  But this suggests V is defined as PY/M

So which is it?  It turns out that when MV= PY was first created, V was probably something like #1, but today #2 is the accepted definition.

For example, some money is spent on things that are not a part of GDP, such as used goods, or intermediate goods.  So could we fix the definition by calling V the “average number of times a dollar is spent on final goods”?  Unfortunately no, as there are some final goods for which money is not spent.   Suppose that (on average) each dollar was spent 15 times per year on final goods transactions.  And suppose there were a trillion dollars in money in circulation.  Would NGDP be $15 trillion?  No, as NGDP also includes things like implicit rent on owner-occupied housing, for which no money changes hands.

Similarly, saving once had a common sense meaning that was different from investment.  Saving and investment (as defined in earlier eras) were not equal by definition.  But then economists found it useful to define saving as the funds spent on investment.  They became two sides of the same coin, like sales and purchases.

Now it’s not clear if these identities are useful.  I think they are, as (for instance) it’s simpler to model NGDP if it equals M*V, than if it equals M*V*ff, where ff is a fudge factor to account for the fact that there are issues like owner-occupied housing.

Oddly, there is another version of the equation of exchange where the common sense definition is exactly right:

M = k*P*Y

Where k is both:

1.  M/PY

2.  The average share of gross domestic income held as cash balances (globally).

It’s unfortunate that most textbooks rely on the version of the equation of exchange where the common sense definition is not equal to the official definition.

Suppose the government suddenly redefined cars as a capital good (they are currently considered consumer goods.)  Gross investment would immediately soar much higher (although net investment, which really matters, wouldn’t change all that much.)

So would saving still be equal to investment?  Yes, because at the same moment gross saving would also soar in value, as funds spent on cars would now get included into saving.

Many commenters on confused on that point.  They talk about Americans “spending” lots of money on housing during the housing boom, instead of “saving” the money. But according to the official definition, spending on new housing is saving.  Perhaps spending on cars should also be viewed as gross saving.

Even better, why not stop obsessing over the C+I+G+NX = GDP relationship, and just focus on NGDP.  The line between C and I is quite arbitrary, and not all that important for issues like the business cycle.  It’s NGDP that matters.

At one time Keynesians thought saving was really important for the business cycle, but in the New Keynesian era we all realized that it wasn’t, what mattered was monetary policy.  No more paradox of thrift.  Unfortunately some have forgotten that lesson, others have wrongly assumed that everything is different at the zero bound.  It isn’t.

PS.  This is inspired by a recent post by David Glasner.  This paragraph is worth commenting on:

OK, savings are the funds used for investment. Does that mean that savings and investment are identical? Savings are funds accruing (unconsumed income measured in dollars per unit time); investments are real physical assets produced per unit time, so they obviously are not identical physical entities. So it is not self-evident – at least not to me — how the funds for investment can be said to be identical to investment itself.

The “S” and “I” that are used in national income accounting are both measured in dollar terms.  It’s not the number of houses built that matter, but the dollar value of expenditure on those houses.  So there is no “apple and oranges” comparison problem here.  Both saving and investment can be measured in either real or nominal terms. In either case they will always be exactly identical, because they are defined as being identical.  However, just as with MV=PY, I can imagine definitions of saving where S=I is not an identity.